For months, as inflation has risen and the Federal Reserve has acted aggressively to curb it, a question has hovered over the monthly employment reports: Has the labor market succumbed to gravity yet?
The answer so far has been: “No, mostly not.” But in the July report, which arrived Friday, the answer is likely to be: “Yes, but it hasn’t crashed into the ground.”
Ever since supply chain problems and the war in Ukraine sent prices soaring, the brightest feature of the economy has been robust job growth, with 6.3 million jobs added over the past 12 months. As of June, the US was within 520,000 jobs of its pre-pandemic peak, held down by a decline in government employment.
But that recovery has come under increasing strain as inflation has eaten into consumers’ spending power and darkened their spirits, and as rising interest rates have begun to weigh on demand for big purchases like homes and cars. Gross domestic product, adjusted for inflation, fell for the second consecutive quarter, held back by lower growth in inventories and falling housing investment.
And lately there have been signs that the economic headwinds are also affecting the labor market. Job openings have fallen from record highs in the spring, driven down by slowing demand for retail, leisure and hospitality workers. Initial claims for unemployment insurance crept up to 260,000 in the week last month from a low of 166,000 in the week in March. Hiring on LinkedIn has declined since April, especially in construction and hotels.
On average, forecasters expect the report on Friday to show the nation added 250,000 jobs in July. Last month’s report showed a gain of 372,000 in June, on par with the previous three months.
Polling and research firm Morning Consult, which surveys about 20,000 people a week, has noted an increase in the number of U.S. adults who report losing income due to layoffs or reduced hours. Consistent with research showing that people of color are the first to be affected when employment declines, these increases have been strongest among black and Hispanic workers.
However, the increase in income loss has not been concentrated in sectors sensitive to peaks in coronavirus transmission, as has been the pattern since 2020.
“It’s not a Covid story – I think it’s a broader macro slowdown,” said Morning Consult’s chief economist, John Leer. “People were hoarding workers, and right now we’re at a point where it makes sense to let them go because of business cycle uncertainty.”